In 2022, consumer price inflation in the euro area has climbed to record highs. As a result, many households have increased their inflation expectations, thus increasing the risks of more persistent inflation in the future. Using the Bundesbank Online Panel Households as a laboratory, this column provides evidence that individuals who are shown ECB communication on the inflation outlook significantly reduce their inflation expectations. Furthermore, explaining the outlook verbally has a substantially larger effect than merely providing numerical projections.
The share of pre-tax income flowing to the top of the UK income distribution is significantly higher than it was in the early 1980s. This column explains the nature of top incomes in the UK and how they are taxed. Overall, the authors argue, UK income taxes are progressive, with average tax rates rising with income. But incomes from business ownership and investment are taxed at lower rates than employment income. With a reformed tax base, there would be a strong case to align tax rates across different sources of income.
Inequality statistics come with a lag relative to growth statistics. This column presents new real-time inequality statistics for the US, synchronised with growth statistics, which show that all income groups recovered their pre-crisis pre-tax income level within 20 months of the beginning of the Covid-induced recession. Covid-related transfers drastically but temporarily increased disposable incomes for the bottom 50%, well above their pre-Covid levels.
When pension giant ABP faced protests about its fossil fuel investment strategy, did it choose to exert pressure on oil companies or divest from them? Jeff Wurgler and Dirk Schoenmaker talk to Tim Phillips about how the finance sector can accelerate a green transition.
How temperature dynamics affect the economy is key to understanding the impact of climate change on monetary policy. This column presents new evidence that local temperature fluctuations had aggregate effects on the US in the last 50 years. Results show that US-wide temperature shocks, constructed by weighting unexpected county-level temperature variations, reduced both GDP and consumer prices, inducing an expansionary monetary policy reaction and a revision of the Federal Reserve’s economic forecasts.
Environmental, social, and governance metrics are receiving increasing attention as a measure of corporate performance. This column uses cross-sectional data to assess the prevalence and impact of including such metrics in executive compensation schemes. Usage of ‘ESG pay’ has grown rapidly in the past decade, with over 30% of firms including ESG metrics in their key performance indicators in 2021. It is more common in countries perceived to be sensitive to ESG concerns.
Central banks around the globe face new challenges in the form of adverse supply shocks, rising inflation rates, and the consequential need to tighten monetary policy without causing dislocations in financial markets and the real economy. In addressing these, the accompanying communication of central banks is often seen to be as important as the actual policy actions. This column shows that market responses can be directly linked to topic-specific news revealed in the communication of central banks.
Climate change is increasing the frequency and intensity of disasters, but the ability to cope varies widely across the globe. This column examines how city death tolls and economic activity are affected by flooding. Richer places with the resources and infrastructure to cope with disasters tend to be more resilient. Compared to cities in low-income countries, those in high-income countries suffered fewer deaths per disaster, adapted over the years to better mitigate the effects of flooding, and recovered faster from economic damage.
Citizens often seem to choose which political party to support by seeking out information based on their party affiliation, rather than based on informed opinion. Along with the explosion in new media in the US, trust in mainstream media has been decreasing, particularly amongst Republicans. This column presents a framework to analyse how beliefs regarding the mainstream media impact individual media choice and thereby influence electoral outcomes. A substantial political advantage accrues to the side with less exposure to or trust in mainstream media.
Large investments in low-carbon technologies are needed to limit global warming. This column uses data on US start-ups over the past 20 years to analyse how venture capital in clean technologies can address the funding gap. It argues that unsuccessful nationwide US climate policy has dampened demand for clean energy technologies in the past.